Do you hold shares in an unlisted trading company? Did you know you can get CGT relief on disposal if you have held them for a minimum of three years? Read our article to find out more.
What is it?
Investors relief is where long term investors dispose of their shares held in unlisted trading companies. It is different to entrepreneurs’ relief in that the investors cannot have a connection with the company.
Its purpose is to complement entrepreneurs’ relief and any gain made of shares disposed is subject to 10% Capital Gains Tax (CGT). There is a lifetime limit of £10 million.
Its goal is to attract long term investment to help provide companies with funding for further growth.
Does it affect you?
You must have held your shares for a minimum of three years. Your shares must have been disposed of on or after 6 April 2016. The first qualifying disposals will not occur until 6 April 2019.
How does it work?
Harriet is planning to dispose of all her shares in XYZ Ltd in 2030. It is expected to produce a gain of £16 million.
She subscribed for her shares in 2025 and the gain qualifies for investors’ relief. The gain may exceed the lifetime limit of £10 million.
Harriet transfers half of her shares to her husband Paul before disposal. The sale of the shares in 2030 results in a gain of £8 million each. This is below the £10 million allowance. They both qualify for investors’ relief and pay 10% CGT on the entire gain.
• The shares must be purchased for genuine commercial purposes and not for tax avoidance purposes
• The investor cannot be a relevant employee or connected to an employee of the business
• An investor cannot receive over £1,000 from the shares before the three year period is over.
The 10% extension of CGT to external investors can be really useful in attracting investment for your business. It is there to provide a financial incentive to invest in unlisted trading companies. Long term investors enable the companies to have access to capital, so they have the opportunity to expand.
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